A company estimates they will sell 100,000 units (@$10/unit)
A company estimates they will sell 100,000 units (@$10/unit)
Subject: Business   / Finance
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A company estimates they will sell 100,000 units (@$10/unit) of a new product starting from year 1 and sales units will grow at 6% for four years until year 5. Fixed costs are $400,000 annually. Variable costs are $5/unit. All sales, variable and fixed costs are cash. The new machinery to manufacture the product will cost $500,000 in year 0 and be depreciated straight line over the next five years to a salvage value of $50,000. At the end of the project the machinery will be sold for $50,000 and no new sales will occur. The tax rate is 34%. What are the annual cash flows (year 0 to year 5)?
What is the NPV (in year 0) if the project has a 13% required return (OCC)? IRR? Discounted payback period?